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Six key developments for not-for-profit CPAs

The missions not-for-profits (NFPs) follow do not make them immune to
the business difficulties faced in other sectors.

Complexity, regulation, globalization, and economic trends all are
creating challenges for NFPs, their leaders, and the CPAs who work
with them. New accounting standards for NFPs are under development,
and NFPs face new demands for transparency as the economy and donors
recover from the financial crisis.

Here are six developments discussed Thursday at the AICPA
Not-for-Profit Industry Conference in Washington:

FASB proposal coming. A FASB proposal designed to
improve financial reporting for NFPs is expected to be released as an
exposure draft in the fall, said Jeffrey Mechanick, CPA, CGMA, the
assistant director for nonpublic entities at FASB.

One highlight of the proposal is expected to be a reclassification of
net assets. Under current U.S. GAAP, net assets are divided into three
categories—unrestricted, temporarily restricted, and permanently restricted.

The proposal is expected to divide assets into two classes—without
donor restrictions and with donor restrictions—with some new
disclosures required.

Policies on gifts, ethics needed. Various
situations in which donors are suing NFPs highlight the need for
strong, consistent policies and agreements on gifts and ethics, said
Lou Mezzina, national industry director for higher education and other
NFPs at KPMG.

Young donors want information. NFPs are finding
that younger donors often want measurable information on how
organizations are spending their resources.

“Generation Y is more likely to demand accountability and
transparency,” Mezzina said.

Quarterly earnings calls experiment. In the name
of transparency, some NFPs have been experimenting with quarterly
earnings calls to give interested parties information on their performance.

GuideStar USA—an NFP that aggregates and provides information about
NFPs as a service to donors and the public—is among them. GuideStar
jokingly labels the calls an “anti-hypocrisy mechanism,” because his
organization often calls for transparency in the sector, said Jacob
Harold, GuideStar’s president and CEO.

GuideStar has received great feedback about the calls, he said, but
the organization also has been cautioned not to let the attention to
quarterly results contribute to short-termism.

“We are definitely not saying that the cycles of social change are
that short,” Harold said.

Middle class a concern. Surveys have shown that
the wealthy have fared well in the recovery from the financial crisis,
but the middle class has struggled to bounce back.

Mezzina said this is causing difficulties for NFPs because while they
may be having success recruiting wealthy donors, smaller donations may
be more difficult to secure than before the financial crisis. For
example, $25 donations by people of modest income to sponsor friends
who are doing walks or runs to benefit a cause may be more difficult
to procure now, Mezzina said.

“Starvation cycle.” In some cases, NFPs are
struggling to accomplish their missions because the donating public
has been convinced that overhead ratios and fundraising ratios measure
performance, Harold said.

He said this is leading to an NFP “starvation cycle.”

Although those ratios are valuable data points, they don’t provide
critical information about the people and communities the NFPs are
trying to serve, Harold said. But ever conscious of those ratios, NFPs
are failing to fund core operations and failing to invest in people
and measurement systems, Harold said.

TAX NEWS

President Barack Obama signed legislation that retroactively extended more than 50 expired tax provisions for 2014, allowing taxpayers to take advantage of a host of tax incentives during this filing season.

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